In the buyer’s market of today, it seems like everyone is trying to get into a home while the prices are still at record lows. Though despite the low prices and bargain mortgage rates currently available, not all aspiring homeowners have the funds to begin a long term mortgage. Aware of this, lenders are beginning to offer no deposit mortgages so that potential homeowners can forgo saving for large down payments and own their dream home today. Just as with any loan, however, you need to understand what you’re getting into with a no deposit mortgage before you sign the dotted line.

What is a No Deposit Mortgage?

As the name implies, a no deposit mortgage is one in which you do not have to have the large portion of the mortgage as a down payment. Since lenders typically ask for 20% of the total value for a down payment, many potential buyers are scared away before even beginning the process. With a no deposit mortgage, you can take out two different mortgages at the same time – one for the deposit and another for the remainder. This allows you to pay a minimal upfront fee for your home, while also getting your in the front door.

Who Can This Mortgage Benefit?

At first glance, it seems like everyone can benefit from this type of mortgage. Because you do not need to have any money upfront, you can begin the home buying process as soon as you find a home that you like. For those without a lot of savings, this is an ideal arrangement. It is also a good loan agreement for those that want to take their savings and invest in stocks and high interest accounts, rather than using the money for their mortgage payments. In the end, these high interest accounts will help the person save up more money than they would have saved by using it toward the house itself. And for home buyers that might not have the best credit rating, these loan agreements can help them get back on solid financial footing.

What are the Problems with the Mortgage?

The main problem with no deposit mortgages is that applicants that don’t have a strong financial background are at a higher risk of defaulting. This is often why these mortgages are accompanied with higher interest rates than typical ones. Another concern with this type of mortgage is that even if you do receive a low interest rate, you still might end up paying more interest in the end. This is due to the borrower essentially being responsible for two mortgages instead of one. For instance, say you get a no deposit mortgage and you then eventually get an ARM mortgage (adjusted rate mortgage), you might end up having to pay a much great sum since you are carrying two loan agreements.

If you know that you can be disciplined about paying off your mortgage and beginning a savings plan, then the no deposit mortgage is certainly something to consider. Just be sure that the arrangement needs to work out for you in the end too, not just for the lender.

This entry was posted on Friday, July 17th, 2009 at 8:08 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

• Guest Post - 10 Ways To Make Saving Money Painless. Today's guest post is from Brip Blap. What does that mean? Check out his site when you get a chance and find out! As anyone who has started to learn about personal finance knows, one of the cornerstone ideas is...
• Understand Mortgage Options Before House Hunting Whether you are looking for your first place or downsizing for retirement, finding the perfect home can be harder than many people realize. Home buyers should know that finding the perfect location or floor plan are not the only decisions...
• Credit Series: Why Credit Matters We've talked a lot about how credit scores are calculated as well as ways to improve your score, so today I wanted to take a look at how your score actually affects you. Your credit score has a large impact...
• How we paid down our debt and saved money at the same time..it can be done! I have been reading a lot of posts at different financial websites lately about the trouble people are having paying off their credit card debt while trying to save a little extra money for themselves. First of all, anyone doing...
• The Big List: 1,019 Different Ways To Save Money. OK, times are tough - We all know it. Right now, you might be worrying about how to pay for groceries or the gasoline in your car, and we can use all the help you can get to stretch each...